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San Bernardino City Council Leaves Door Open For Vice Kingpin Welty

By Mark Gutglueck
After appearing to be on the brink of prohibiting vice kingpin Randy Welty from operating marijuana sales businesses in their city of 215,000, San Bernardino municipal officials this week stopped short of doing so, leaving the door open for him to ply his trade in what is likely to prove the most profitable cannabis-sales venue in San Bernardino County.
For more than two decades, San Bernardino has waged a series of bruising battles with Welty, in which the mercurial and wealthy Vietnam War veteran was able to use his financial wherewithal and ruthless political tactics to counter the heavy-handed authority governmental entities are accustomed to applying in their administrative and legal contests with citizens living, or entrepreneurs operating, within their jurisdictions. In virtually all of those clashes Welty prevailed, and whatever victories the city laid claim to proved temporary and pyrrhic.
Welty, who at present owns or has a controlling interest in eleven topless or topless/bottomless/fully nude or partially nude theaters or bars, seven adult bookstores and 56 medical marijuana dispensaries throughout California along with at least seven race horses, was the prime mover behind the opening of the Flesh Club in San Bernardino’s prime commercial and entertainment district on Hospitality Lane in 1995, though the “totally nude” female dancers review venue was ostensibly owned and operated by his son. The city, under the leadership of three separate mayors – Tom Minor, Judith Valles and Patrick Morris – and then-city attorney James Penman sought, ultimately unsuccessfully, to close the Flesh Club down.
The city utilized both legitimate and some ethically questionable tactics in attempting to achieve that end. Those included sending undercover police officers into the place, where they used hidden cameras to film the on-stage antics of the dancers, which in some cases came close to being actual or simulated sex acts. The city retained a private eye who had previously had a career as a porn star, and she managed to get hired on at the Flesh Club as a stripper, from which vantage she was to provide her client with a window on the internal goings-on at the wide open nightspot. Less than a week into the assignment, she reported that the club was indeed “a house of prostitution.” In a court proceeding, the city called as a witness a disgruntled former Flesh Club dancer, who testified that during her run there she was a hooker who was paid $1,000 a day for providing sex to customers. City officials were particularly interested in obtaining damning information about what occurred within the establishment’s “VIP Room,” where customers willing to throw around conspicuous amounts of cash were granted entre. The city hired a former Riverside County sheriff’s deputy then working as a private investigator, Duane Minard, to see if he could get into the inner sanctum. And indeed, by offering a stripper $120 for a “private dance,” Minard was allowed in. The $120 was a mere opener, however, and though Minard was eventually given the full treatment, to get to that level he had to leave the VIP room and the club, go out to the parking lot and retrieve from his car another $680, which he brought back into the VIP Room, whereupon he was permitted to score a touchdown.
Armed with that evidence, the city and Penman pushed to have the Flesh Club closed. But Welty and his staff were no less, and even more, capable of using bare-knuckle tactics. Several girls, young and comely ones, were given the assignment of making friends with city officials, primarily the decision makers, including elected leaders, high-ranking staff and senior police officers. Though precise details are not for publication, through friendly persuasion, or outright blackmail, city officials were prevailed upon to let the matter lapse, and the Flesh Club persisted as a dot upon the San Bernardino landscape.
Moreover, Welty employed one of the best attorneys in the business, famed civil liberties litigator Roger Jon Diamond, who took the opportunity to teach his adversaries in the city attorney’s office a thing or two about the law. Diamond has no hesitation whatsoever to take on, indeed thrives on, cutting edge freedom of speech and freedom of expression issues where public and social sensibility is being tested. Time after time, public entities, led by elected officials seeking to hold the line on what they consider to be issues of common decency and social conservatism, and encouraged by a vocal element of their constituencies, overstep their authority in preventing Diamond’s clients from engaging in constitutionally protected activity, whereupon Diamond will give the lawyers representing the government a sound drubbing at the trial court or appellate court levels. In conjunction with Welty, Diamond has consistently turned these efforts into lucrative enterprises. The formula Welty follows is to acquire, by taking over or buying, what is a marginal or maybe even failing night spot – either a bar, pool hall, night club, comedy club or sports bar. Welty will initially, sources say, try, or at least appear to try, to have the night spot make a go of it. At some point, he will, perhaps with or perhaps without local government approval, transition the business into one with a sexual theme – usually one featuring some order of nude female dancing. He will keep the business operating at what ostensibly is a profit. When the city or county moves to shutter the business, Welty will then embroil the government in costly litigation pertaining to contractual, First Amendment and zoning issues, almost invariably prevailing and achieving a settlement which more often than not includes the city paying Welty handsomely – typically in excess of $1 million – for lost profits.
After Welty opened the Flesh Club in San Bernardino, the city predictably moved to close the enterprise, at which point Welty brought in Diamond to bloody the city’s and then-city attorney James Penman’s noses. The Flesh Club remained shuttered for four years while Welty pursued a $2.6 million suit challenging the city code and the specific ordinance cited in the Flesh Club’s closure. Welty obtained a court order calling for the city to allow the club to reopen along with a $1.4 million judgment to recover lost income suffered during the closure.
Having already taken San Bernardino, its officials and its taxpayers for a lucrative ride once over nude dancing, Welty two years ago moved to capitalize on the juggernaut city officials had created by their move in 2007 banning medical marijuana dispensaries. The overriding majority of the city council, philosophically opposed to the concept of marijuana use and availability liberalization for both medical and recreational purposes, consistently turned back or thwarted calls by availability advocates to permit dispensaries to function legally within the city. In defiance, a number of entrepreneurs established clinics in the city, most often doing so on the sly by registering the enterprises and applying and receiving business licenses that wove code names and terms into the business titles such as remedy or remedies, herbal, botanical or botanicals, green, holistic or holistics.
Nevertheless, a controlling majority of San Bernardino’s political establishment, consisting of John Valdivia, Henry Nickel, Jim Mulvihill, Fred Shorett and Mayor Carey Davis, were unwilling to embrace cannabis liberalization. All five had assumed that “potheads” lacked the discipline and cohesiveness to mount any kind of political effort, and were stunned to learn in 2016 that the cannabis availability advocates within the city had managed the daunting task of gathering sufficient signatures to put an initiative on the ballot calling for allowing dispensaries to operate in the city. Welty took the opportunity to apply money of his own to get a more self-serving initiative on the ballot, one that would virtually assure he would be one of the city’s marijuana entrepreneurs. Outmaneuvered by the stoners for whom its members had such disdain, the council sought to catch up, putting its own commercial marijuana initiative on the ballot, one that had far greater restrictions and regulations built into it than either of the other measures. When the three competing measures came before the city’s voters in November 2016, the city’s commercial cannabis-activity-permitting-and-regulating proposal, Measure P, went down to defeat, with 23,106 votes or 48.45 percent in favor and 24,583 votes or 51.55 percent in opposition. Besting Measure P was the proposal put forth by the city’s homegrown marijuana aficionados, Measure N, which garnered 24,048 votes or 51.1 percent, with 23,015 or 48.9 percent in opposition. Despite that showing, Measure N did not prevail, as the Welty-sponsored Measure O topped it, with 26,037 votes or 55.12 percent and 21,196 or 44.88 percent in opposition.
In the aftermath of Measure O’s passage, city officials said they would move expeditiously to actuate it, but then delayed, saying they needed time to redraft elements of the city code to make it compatible with Measure O. That had not been completed when in February 2017 the city was hit with two lawsuits challenging Measure O’s provisions legally and procedurally. One of those lawsuits was filed by former Adelanto City Manager James DeAguilera on behalf of the group that had sponsored the competing Measure N dispensary permitting initiative. City Attorney Gary Saenz, citing that litigation, suspended the full implementation of Measure O.
On March 9, 2017, by which point the city had not yet put any of the elements of the protocol for the marijuana dispensary permitting process provided for in Measure O into place, Diamond, on behalf of Welty, filed suit against the city. Three months passed before the city’s community development department provided applications for dispensary operations to interested parties. On August 24, the city issued a permit for its first legal marijuana dispensary operation to an entity functioning out of the address at 100 W. Hospitality Lane. 100 W. Hospitality Lane is the address of the Flesh Showgirls, the current reincarnation of the Flesh Club. The de facto owner of Flesh Showgirls is Randy Welty.
As is typical of so many of Welty’s operations, the permit for the dispensary is not in Welty’s name but rather in that of Quiang Ye, who has been identified as the general manager of Flesh Showgirls.
Two months ago, in December, Judge David Cohn, ruled that Measure O imposed on the city so-called “spot zoning,” which unfairly delineates certain properties as eligible for commercially intensive activity and advantages the owners of those properties to the detriment of surrounding or nearby property owners, while simultaneously and not coincidentally creating a virtual marijuana sales monopoly for the sponsor of Measure O, i.e., Welty.
The city utilized Judge Cohn’s ruling disqualifying Welty’s Measure O to revisit the entire concept of how marijuana availability is to be regulated in the city. Two weeks ago, on February 7 the council gave approval and first reading to a cannabis regulation ordinance. The ordinance set a ratio of one cannabis-oriented business per 12,500 residents, meaning 17 marijuana-related concerns are to be licensed in the city of 215,000. The ordinance required businesses to be at least 600 feet away from schools and commercial daycare and youth centers; at least 300 feet away from residentially zoned property or any existing residential units, even if those units are not on property that is residentially zoned and left for future determination the distance requirement from other public and private facilities, including government offices, churches, bars, fraternal meeting places and libraries. The ordinance declared cannabis-based businesses are off-limits to those under the age of 21 and disallowed any conspicuous advertisement of the businesses, such that “Business identification signage shall be limited to that needed for identification only and shall not contain any logos” or reference to marijuana. The ordinance called for security measures at the businesses, including video cameras trained on the exits, entrances and the internal areas where customers are present, as well as doors subject to electronic control and locking. The ordinance mandated that each business employ a uniformed and licensed security guard during operating hours.
The ordinance passed on February 7, and consistent with state law permitted those 21 years of age or older to grow up to six marijuana plants at his or her domicile with the proviso that the plants cannot be in common public view. It prohibited consumption, i.e., smoking, of the weed in public places, public buildings and places generally open to attendance by the public or within 50 feet of the entrances to public places or buildings.
Brought home during the February 7 public hearing relating to the ordinance was the opportunity within the ordinance as then drafted for it to be extended to exclude Welty from operating within the city. One section of the ordinance accepted by the city council that night pertained to persons to be excluded from receiving a commercial license to sell or distribute marijuana or be in any way involved in the cannabis industry within the city. As drafted, that section excluded those who had previously violated the city’s ban on operating a cannabis-related business in the city. Though Welty was not alleged to have violated San Bernardino’s marijuana ban, he had been not only accused of but demonstrated to have done just that elsewhere. Most recently, in November 2017, Welty had come to an agreement with the City of Upland with regard to closing down an illicit marijuana dispensary he operated, known as Captain Jack’s, located at 2085 Foothill Boulevard, next to his Tropical Lei strip club. For going on seven years Welty had operated Captain Jack’s in defiance of Upland’s city codes, pulling down an estimate $3 million in gross revenue there. Captain Jack’s had been twice cited by the City of Upland as an illegal operation, once on December 18, 2014, and again on March 28, 2017. In the document memorializing the deal brokered between Welty and the City of Upland, it was stated, “For some years, the property has been used for the purpose of marijuana related use and activity. Throughout this time, Waldon R. Welty, an individual, has held himself out as an authorized agent of the marijuana collective operating at 2085 Foothill, LLC.” The document, dated November 8, 2017 and signed by Welty, also states, “The agreement between the City of Upland and Waldon R. Welty requires that the current business at 2085 W. Foothill Boulevard cease operations as of January 1, 2018 and a settlement of $100,000 be paid to the city.” Furthermore, according to the settlement agreement, “Welty shall not conduct or otherwise permit any marijuana related use and activity at any location within the city, including but not limited to the property.”
On February 7, the San Bernardino City Council had passed the ordinance as previously drafted by giving it what is referred to, in parliamentary terms, as a first reading. Two such readings are required to finalize passage. Normally, one month after passage by a second reading an ordinance goes into effect. On February 7 it was expected that the ordinance would come back for its second reading and passage this week, on Wednesday February 21, and would thus become effective as of March 21. In the interim between February 8 and February 21, however, staff undertook to make changes to the ordinance, such that when it was again presented to the city council on Wednesday, it was not up for a second reading but rather the first reading of the redrafted ordinance. It was widely anticipated that the version of the ordinance to be reconsidered by the council would involve some changes in the language relating to the section touching on individuals to be prohibited from running a marijuana-related business in the city that would extend to those who had previously violated the law with regard to illicit commercial marijuana operations in general rather than simply those who had violated the City of San Bernardino’s ban. On February 21, however, the ordinance reviewed by the city council carried this language under Section 5.10.100: “Persons prohibited from holding a commercial cannabis business permit or being employed by a commercial cannabis business.(a) Any person for which any of the following actions or notices have been issued in non-compliance shall be prohibited from holding a cannabis commercial business permit or being employed by a commercial cannabis business in the City of San Bernardino.(1) The applicant, permittee, or employee has been denied a license or has had a license suspended or revoked by any city, county, city and county or any state cannabis licensing authority;(2) The applicant, permittee, or employee was either convicted, pled guilty or nolo contendere, or was found by the city’s hearing officer pursuant to Chapters 9.92 or 9.93 of conducting commercial cannabis activity in non-compliance with Title 19 or other City of San Bernardino ordinances, codes and requirements in which they failed to discontinue operating in a timely manner; (3) Evidence that the applicant, permittee, or employee was in non-compliance of properly paying federal, state or local taxes and/or fees when notified by the appropriate agencies;(4) The applicant, permittee, employee, or the owner of the property upon which the proposed commercial cannabis activity is to occur, have conducted commercial cannabis activity in the City of San Bernardino in violation of local and state law or failed to report income from such activities to the federal, state, or local government in violation of federal, state, or local law.”
It thus appears Welty will be at liberty to own or operate a dispensary or several dispensaries in San Bernardino. The council’s timidity on that issue immediately fueled suggestions that Welty had in some fashion worked his intimidation/blackmail magic on five of the six male members of the council – Mayor Carey Davis and councilmen John Valdivia, Jim Mulvihill, Benito Barrios, and Fred Shorett. Shorett, formerly a vocal opponent of marijuana liberalization in San Bernardino, was notably absent from the February 7 and February 21 council meetings. Barrios is the lone member of the council who has consistently supported allowing the licensing and permitting of marijuana sales in the city.
Despite requests by would-be cannabis business operators that permit durations be increased to as long as three years, the city council left intact that element of the ordinance passed on February 7 that makes marijuana-related business permits valid for one year, and leaves discretion to the city to extend the permit further based upon the permittee’s compliance with city regulations. The ordinance does not specify what the dollar amount of a permit fee is to be.
The ordinance gives the city manager wide latitude in applying and altering the city’s policy, although the council did stipulate that changes in the rules and regulations be brought to the council for final approval.
The version approved this week carries with it a requirement that those cultivating marijuana for personal use on their own premises register their horticultural activity at a city website. The council also doubled the required distance separating commercial marijuana operations from residences from 300 feet to 600 feet.